SBMs, 1332s and Exchange fees

States have plenty of choices to make regarding the ACA individual market in their state.  The biggest choice is whether or not the state will expand Medicaid.  After that there are a lot of mid-level choices including the decision to operate a state based marketplace (SBM) or rely on Healthcare.gov as well as the decision to apply for a Section 1332 waiver that is usually used for reinsurance. Reinsurance in the ACA context is used to drive down the gross, non-subsidized premium.  A co-author sent me an interesting article from a couple of days ago that is making me think through connections more deeply.

This is going to be geeky as it was originally going to be a rambling e-mail to a couple clusters of co-authors.  State discretion in the ACA is my dissertation topic so I need to get this out.

Now back to the article, from 2020 on the trade-offs states have when they switch to an SBM.  This is from CBPP:

In Pennsylvania, which plans to launch a full SBM in 2021, officials have said it will cost as little as $30 million a year to operate — far less than the $98 million the state’s individual-market insurers are expected to pay toward the user fee in 2020.^[15] Pennsylvania plans to continue collecting the user fee at the same level but is proposing to use between $42 million and $66 million in 2021 to establish and fund a reinsurance program that will reduce unsubsidized premium costs beginning in 2021.^[16] Assuming about $100 million in total user fee collections, this leaves about $34 million to $58 million to fund the state’s exchange, or about $101 to $172 per exchange enrollee in the first year.

The first thing that leaped out at me is the drop in resources available for advertising. The state projected that using Healthcare.gov would lead to insurers paying about $100 million a year in fees. These fees are a percentage of total premium collected. That $100 million is used to operate the servers, staff the call center, validate plans and pay for outreach and advertising. Under the Trump Administration, that outreach was minimal after 2018, mainly e-mail blasts. Pennsylvania proposed to run a basic SBM in a box and use a lot of the incremental spending for a reinsurance fund. In that set-up, there is a very good paper that I am trying to convince my regular TV advertising and the ACA crowd to look into.

More broadly, reinsurance drives down premium.  Exchange fees to run an SBM or Healthcare.gov are almost entirely a function of gross premium.  Some states have reinsurance programs. Other states do not.  Within a state that operates an SBM, the lower overall premium level (or at least how we account for premium levels with reinsurance as it is really a back door subsidy), does not matter much as every insurer is exposed to the reinsurance program as any distribution or redistribution is happening only within a state and not between states.

However on Healthcare.gov, some states have reinsurance and some states don’t.  In an environment, like the Biden Administration, where substantial sums are spent on outreach and advertising, are the insurers in no-reinsurance states being overcharged and insurers in reinsurance states under-charged to support the national advertising and outreach efforts?

States without reinsurance, holding enrollment equal, have an increasing share of total national premium per enrollee compared to states that have enacted reinsurance.

The basic question, and it is one that my co-authors and I are noodling hard on, is what is the incidence and distributional consequences of ACA reinsurance?